A Cost Function Analysis of Crop Insurance Moral Hazard and Agricultural Chemical Use

This paper employs a cost function analysis method to investigate the existence of moral hazard in cotton buy-up insurance. The trans-log cost function estimates of the own-price elasticity of fertilizer, herbicide, and insecticide is -0.222, -0.143, and -0.121, respectively for Mississippi cotton production. Our results found statistically significant relationship between per acre direct cost and cotton buy-up insurance for year 2001 and 2005 in Mississippi. Our results also indicate that moral hazard can either decrease or increase agricultural input usage depending specific production condition in an individual year. But in general the results support effects smaller than anecdotal evidence would suggest.crop insurance, moral hazard, agricultural input use, cost function analysis, cotton, Agribusiness, Agricultural and Food Policy, Demand and Price Analysis, Production Economics, Risk and Uncertainty,

Implications of Integrated Commodity Programs and Crop Insurance

Moving from price-triggered to area revenue–triggered programs was perhaps the most common theme among 2007 farm bill proposals. Area revenue–triggered commodity programs may make farm-level revenue insurance products seem redundant, raising questions about why the federal government should continue both programs. Area revenue–triggered programs would remove much of the systemic risk faced by producers. As a result, private sector insurers may be able to insure the residual risk without federal involvement. This paper examines the effects of moving to area revenue–triggered commodity programs with a focus on public policy issues that would likely arise.commodity programs, revenue insurance, systemic risk, Agribusiness, Crop Production/Industries, Productivity Analysis, D81, G22, Q18,

Cheap Food Policy: Fact or Rhetoric?

The term "cheap food policy" has frequently been used as a descriptor for U.S. commodity programs by those who contend these payments to farmers ultimately result in lower food costs for consumers. More recently, farm policy has been criticized for contributing to the obesity problem in the U.S. by making large quantities of fattening foods widely available and relatively inexpensive. This paper econometrically evaluates the impact of direct government payments to farmers from 1960-1999 on the proportion of disposable income consumers spend on food. The model finds the payments do not significantly affect the affordability of food.Agricultural and Food Policy,

An International Comparison of the Effects of Government Agricultural Support on Food Budget Shares

This study evaluates econometrically the effect of government support to agriculture on a measure of the affordability of food in 10 Organization for Economic Cooperation and Development (OECD) countries. The panel model we construct specifically utilizes two values calculated by the OECD: Producer Support Estimates as a percentage of gross farm receipts and the Consumer Nominal Protection Coefficient. These two variables represent transfers from taxpayers to agricultural producers through government programs and transfers from consumers to government through protectionist measures, respectively. By using dummy variables, we find implications for groups of countries on the basis of their relative levels of support and protection.agricultural policy, obesity, Agribusiness, Agricultural and Food Policy, Food Consumption/Nutrition/Food Safety, I18, Q18,

Are Our Agricultural Risk Management Tools Adequate for a New Era?

risk, commodity programs, insurance, Agricultural Finance, Risk and Uncertainty, D80, G11, Q18,

ON CHOOSING A BASE COVERAGE LEVEL FOR MULTIPLE PERIL CROP INSURANCE CONTRACTS

For multiple peril crop insurance, the U.S. Department of Agriculture'Â’s Risk Management Agency estimates the premium rate for a base coverage level and then uses multiplicative adjustment factors to recover rates at other coverage levels. Given this methodology, accurate estimation of the base coverage level from 65% to 50%. The purpose of this analysis was to provide some insight into whether such a change should or should not be carried out. Not surprisingly, our findings indicate that the higher coverage level should be maintained as the base.Risk and Uncertainty,

ACTUARIAL EFFECTS OF UNIT STRUCTURE IN THE U.S. ACTUAL PRODUCTION HISTORY CROP INSURANCE PROGRAM

This paper examines the effects of optional subdivision on APHP losses for wheat, corn, and soybeans. Thirty-seven state/crop programs are analyzed and the implications of the results are discussed in relation to newly developed crop and revenue insurance programs. The results illustrate the importance of incorporating actuarial experience into the premium rate structure and contract provisions of an insurance program.Actual Production History Program (APHP), crop insurance programs, Risk and Uncertainty,

Incentives Matter: Assessing Biofuel Policies in the South

As a result of the increase in the real cost of fossil fuel-based energy in recent years, federal and state governments have taken a more active role in energy policy by creating incentives to develop alternative sources of energy, including biofuels. However, policymakers often become focused on the specific type of energy and not the energy services consumers ultimately value. The lack of recognition of energy as a commodity results in policies that ignore the characteristics of the associated markets: easy entry and exit, no barriers to entry, and sensitivity to changes in supply and demand. Consequently, energy industries may fail to arise because entrepreneurs must be able to account for all costs and earn—at a minimum—a competitive return on the investment. This article evaluates the options available to policymakers related to biofuels, which are of particular concern to the South, and includes an assessment of the knowledge base on which policy decisions are made.alternative energy, biofuels, energy policy, Resource /Energy Economics and Policy, Q41, Q42, Q48,

A Government Decision Model for Invasive Species: Choosing the Most Efficient Government Program for the Management of Livestock Diseases

The impact of invasive species has grown substantially in recent years as evident by the trends in government expenditures in response to outbreaks. In this paper, authors analyze advantages and disadvantages of current government compensation measures for invasive species. The conceptual models are built to describe the relationship between producers’ utility and the effect of adoption of different measures under different observability condition. As a case study, a survey is designed to analyze producer behavior in mitigating AI & END outbreaks.Agricultural and Food Policy, invasive species, indemnification programs, insurance programs, tiered indemnification,

Customizable Area Whole Farm Insurance (CAWFI)

The customizable area whole farm insurance (CAWFI) was designed and compared with no insurance program and currently available whole farm insurance based on farm level yield (CFWFI). The CAWFI yields higher certainty equivalents over no insurance program, but lower to CFWFI; CAWFI has fairly small indemnity compared with CFWFI.Agricultural and Food Policy, Crop Production/Industries, Production Economics, Risk and Uncertainty,